Have the NGFS and the Bank of England missed an opportunity to drive the race to net zero?

Cambridge Econometrics conducted analysis with strategic partner Ortec Finance in response to two influential reports published in June 2021. The NGFS published its second iteration of climate scenarios, and the Bank of England published the second iteration of its Climate Biennial Exploratory Scenarios (CBEs).

The report highlights the fact that according to our climate scenario modelling, the ‘Disorderly, Delayed Transition’ scenario of the NGFS and the ‘Late Action’ scenario of the Bank of England are highly optimistic on the time left before the world needs to transition as well as the speed and  ‘orderliness’ of such a transition.

We used the E3ME macroeconometric model to quantify the transition and physical risk impacts associated to climate scenarios.

When considering a Delayed Disorderly Transition scenario, in which policy action to lower CO2 emission is delayed until 2025, it becomes increasingly challenging to achieve the Paris goals. Our scenario in which we assume that climate policy implementation will be delayed until 2025 (not even 2030, as in the NGFS/Bank of England respective scenarios), the below 2°C target could only be achieved, with a much greater policy ambition than under an orderly transition scenario with immediate policy action.

Key findings:

• Our modelling finds that a 2025 delayed scenario requires three times higher investment levels in energy efficiency to achieve similar reductions in energy demand by 2050 as an orderly transition scenario with immediate transition efforts. Which means an additional US$ 1,030 billion in cumulative investments.
• With the policy delay, carbon prices in the EU would also be higher than in our Paris Orderly Transition Pathway by an additional € 34 per ton in 2030 and by an extra € 103 in 2050, according to our data.